Physician Practice Acquisitions Will Be Critical for Community Hospitals Under Healthcare Reform

Written by Kathleen Roney |
January 18, 2013

Due to changes instigated by the Patient Protection and Affordable Care Act, such as new reimbursement structures, it is important for community hospitals to change their historical interactions with physician practices. According to Mike Williams, CEO of Community Hospital Corp., healthcare institutions are aligning economic incentives with outcomes, and when payment for care is aligned with the quality of that care, it pushes community hospitals and physician practices to work together.

Importance of physician practice acquisition"The most effective way to align the economics and quality of patient care is through the employment of primary care physicians. It is important that community hospitals acknowledge that they can no longer be independent and isolated from physician practices," says Mr. Williams.

The current need for hospitals to acquire physician practices is not entirely new to the healthcare industry. According to Mr. Williams, there was movement among tertiary facilities to acquire physician practices 10 to 15 years ago. During that time, hospitals were preparing for health reform but it didn't take place as anticipated, and many of the relationships that were built were disbanded.

The expertise with which those practices were acquired and the models they were operated under created significant losses for hospitals that had acquired them, says Mr. Williams. While the foundational reasons for the physician acquisition trend are the same today, healthcare reform is being realized this time.

"A certain percentage of hospitals recognize this and are moving forward to acquire physician practices and create an environment for quality care and economic alignment for their communities," says Mr. Williams.

Not all hospitals are embracing the strategyHowever, there are some community hospitals that have not reached a point where acquiring physician practices would seem necessary or be a good idea.

"It is not until 2014 that the full impact of PPACA will come to play. Some hospitals may still live in the old world, only gradually moving toward 2014 and new reimbursement models," says Mr. Williams. "The mindset of not having to worry about it bypasses the point. [The entire industry] needs to work together to optimize the outcomes of care rendered and make sure it is rendered in the most effective way," says Mr. Williams.

To him, one way of rendering the most effective, quality care is through hospitals and primary care physicians working together — through acquisition and integration.

"It may be difficult because many physicians have practiced in an independent setting for most of their careers. To have those physicians change their philosophy over night is unrealistic," says Mr. Williams. "The key is for all parties up front to understand that working together is a model and formula for productivity and outcomes. It is also the determination of whether physicians' reimbursement is high or low."

Alternative relationship structures Due to challenges in acquiring physician practices, some community hospitals are pursuing alternative initiatives for specialty physicians. According to Mr. Williams, a great example is hospitals that are not employing physicians but are working with them to improve quality and decreases costs. This is commonly referred to as co-management. Physicians are not employed by the hospital but work in its clinical setting. The amount of time physicians spend in that clinical setting is documented, so it is legal for the hospitals' to incentivize the physicians without employment. The federal government is allowing this set up. Co-management allows hospitals and physicians to test out a working relationship so that they will be more prepared and potentially more successfully in an accountable care organization or risk-based payment scenario.

"The hospitals and physicians start by building a trusting relationship through working together in oncology, cardiology and orthopedics. It is a first step. However, it does not completely align incentives economically," says Mr. Williams.

Acquisitions produce better outcomesRegardless of alternatives, Mr. Williams has seen the most success in organizations that employ physicians. For example, Scott & White Memorial Hospital-Temple (Texas) is a large tertiary community hospital that employs its entire medical staff. According to Mr. Williams, Scott & White has been able to produce better outcomes at lower costs because it employs its physicians and is able to incentivize them under risk-based reimbursement.

"The industry is seeing more and more hospitals begin to use employment models to employ primary care physicians and specialists so all providers are on the same page relative to outcomes and the cost of those outcomes," says Mr. Williams.

Forward-thinking management and board education is criticalFor the best results in a physician acquisition, a hospital's management team needs to be forward thinking beyond just acquiring physician practices. It must also educate the hospital's board as to why integration is important.

"Board members' ability to understand and support a practice acquisition is only as good as the education they've been given by management teams," says Mr. Williams.

Board education is extremely important in dealing with antagonistic situations that could arise from hospitals acquiring physician practices. If physicians feel their independence is being compromised, they could be unhappy during an acquisition or employment negotiation. According to Mr. Williams, in those situations, the board needs to support the management, and the best support is informed support.

A team effortIf either the hospital or the physicians do not see integration as a team effort, then the outcomes of a partnership will not be successful. "Neither side can say yes to an acquisition but then demand it be done the way it prefers. There has to be the mindset of 'how can a partnership be done to better serve patients and to handle the economic realties of health reform?" says Mr. Williams.

As provisions of the PPACA are realized, the importance of new reimbursement structures and incentive-based care in hospitals will become more important. For this reason, community hospitals need to explore a physician-acquisition strategy that aligns incentives with the entire aspect of delivery of care.